mesh won't deform (in pose mode) once parented to bones
Automatic weighting can fail if there's a badly-formed polygons in the mesh. In your case, there are several overlapping vertices in the character's mesh. After executing Remove Doubles on the mesh, automatic weighting works as intended.

As an aside, you're not supposed to use the metarig object as the character's rig. In the Property space > Object Data tab (armature icon) for that object, there's a Generate button that will create a separate full-featured armature object, named rig.



The metarig is provided as an intuitive way for you to indicate where joints, bones, etc. are supposed to be. The script uses the metarig to decide where all the "real" bones and control bones go. That rig object generated from the metarig is meant to be used as the character's armature, not the metarig itself.